Revising the SCA in 2018 to reduce coal dependence and to meet 2020 renewable energy targets has to be high priority for all stakeholders. A report by Sylvia Chang.

More than half the volume of pollution in Hong Kong is from burning coal for electric power. That also accounts for 68 percent of the city's greenhouse gas emission in the government's Hong Kong Climate Change Report 2015. In the 2013 mid-term review, the fuel-mix for electric power stood at 57 percent coal-fired, 21 percent natural gas and 22 percent nuclear power (imported from the mainland).

Power duopoly

Electric power supply in Hong Kong is franchised to a duopoly of HK Electric and CLP Power, at a rate of return of 9.99 percent on assets invested. The 10 year term of the current Scheme of Control Agreement (SCA) ends in 2018. That arrangement has served Hong Kong well in power reliability, and in one of the world's lowest tariff rates to consumers.

Both companies invest in and own the power plants, transmission gear and distribution grids in their franchises: Kowloon, Lantau, Cheung Chau, Outlying Islands and New Territories (CLP Power), and Hong Kong Island, Ap Lei Chau and Lamma (HK Electric). That gives them enormous bargaining power with the government, while locking-in profits.

The power duopoly, guaranteed a high rate of return with no business risk, no market competition, and no accountability for negative externalities, have triggered a clamor for revision of the next SCA, from consumer watchdogs, legislators and competition advocates. There are no incentives in the SCA for the power suppliers to reduce the negative consequences of using coal as their primary fuel.

All profit, no risk, no accountability

The SCA does not hold the power companies accountable for pollution damage, or the health and economic costs to the community. Business risk is also transferred to the public via the fuel price adjustment mechanism, which insulates the companies from raw material price fluctuations.

Air pollution cost the community HK$27 billion in healthcare in 2015, according to the School of Public Health of the University of Hong Kong (HKU), using the Hedley Environmental Index. Reduced coal prices gained the two companies a windfall surplus of nearly HK$4.43 billion into the Fuel Clause Recovery Accounts and the Tariff Stabilization Funds - even after their rebates to consumers.

Only a smartly revised SCA can bring a fairer deal for the community in the interests of current and future generations. That may require all stakeholders - the power companies, the public, and commercial users, to share the costs of renewable energy use, reduced pollution and a lower rate of return on investment. Above all, it requires effective leadership from the next Chief Executive, for a sustainable SCA.

2020 pollution reduction targets

Following the United Nations Framework Convention on Climate Change (UNFCCC), Hong Kong is pledge-bound to reduce greenhouse emissions. The goal is to reduce sulphur dioxide (SO2), nitrogen oxides and respirable suspended particulate (RSP) matter in the atmosphere.

The targets are achievable if electricity fuel is 50 percent from natural gases, 25 percent from nuclear power and 25 percent from coal and renewable energy. The government has not confirmed the volume of renewable energy they envisage using by 2020. The public consultation document on the future development of the electricity market states the use and development of renewable energy will depend on "public views on the tariff implications".

Advocates of clean energy see the SCA revision in 2018 as an opportunity for manufacturers of renewable energy to enter the market for the city to adopt large-scale use of renewable energy from the sun, wind and waste.

Harnessing power from renewable energy sources costs less than mining, transporting and processing fossil fuels. In 2015, solar and wind-generated power accounted for 95 percent of the global new investment on renewable energy, a big jump from 55 percent in 2006, according to the United Nations Environment Program report.

Renewable energy options

Due to land scarcity in Hong Kong, it's not possible to dedicate large farmlands to generate renewable energy. However, experts say, there are plenty of "underutilized areas" in Hong Kong where solar power generating facilities may be installed.

Village house rooftops, the City Hall car parks, and landfills are ideal places to install solar panels, said William Chung Siu-wai, associate professor with the Department of Management Sciences at the City University of Hong Kong (CityU). According to Chung, solar panels installed on a 70-square-meter roof of a village house can generate up to 28kWh electricity per day, enough to fully charge an electric vehicle.

The three landfills located in the New Territories, covering about 260 hectares, can also be converted into solar farms, said Chung. He estimates that solar panels of 200 megawatts can be installed on the restored slopes of landfills.

Meanwhile, Steve Wong, energy assessor and president of the Hong Kong Energy Conservation Association (HKEnCA), says the existing electricity grid is good enough for distributing energy generated from renewable sources. The envelopes and rooftops of buildings in the city are suitable for facilities to capture solar radiation and wind energy.

Buildings consume about 90 percent of the total electricity supply in Hong Kong, emitting 60 percent of the city's greenhouse gases. By installing renewable energy generating facilities, they could run their air conditioners, reducing the costs of buying power by half.

According to a 2013 research report on solar energy, led by Wong Man-sing, assistant professor in the Department of Land Surveying and Geo-informatics at the Hong Kong Polytechnic University (PolyU), about 233,152 of the 309,606 buildings in Hong Kong are suitable for implementing solar photovoltaic (PV) systems.

The authors estimated that if all such potential had used PV systems for power in 2012, they could have covered 6.9 percent of the electricity consumed locally. Some open spaces in Hong Kong are also suitable for installing PV systems and can, potentially, contribute 7.4 percent of the total power generated to service the city.

Power companies skeptical

In a written reply to China Daily, HK Electric said the company is taking "a prudent but open position" on renewable energy in Hong Kong. The major constraints, it added, are "the shortage of roof space" of its customers and "the huge capital investment to be committed" in implementing the systems of net metering and feed-in tariff.

"Based on our group's experience in Australia and the UK, HK Electric notes that the results could be quite mixed for these two mechanisms," the reply said. HK Electric casts doubts on the feasibility of the two mechanisms in Hong Kong. In a response to the public consultation on the future development of the electricity market, released in June 2015, HK Electric writes, "thorny social issues can arise from feed-in tariff," and "net metering is hardly cost-effective."

CLP seems more open in its response to the public consultation: "We will discuss with the government how encouragement of Net Metering schemes might be included in future regulatory arrangements, taking into account considerations such as the community's willingness to bear the costs involved."

In the longer term, CLP adds, the most effective way for Hong Kong to access large scale renewable energy schemes "would be to increase imports of clean power from such schemes in the mainland".

Grid sharing?

Chung of CityU contends large-scale use of renewable energy is technically feasible in Hong Kong. "Either the market or the financial support from the government can trigger the emergence of a large number of renewable energy suppliers in Hong Kong."

Across the world, governments encourage the extensive use of green energy in two ways: Net Metering, to allow consumers to generate their own power by installing solar panels at home, or Feed-in Tariff, where customers are paid by the grid company for the power they produce, to a cost-based price index formula.

But such third-party schemes need access to the electrical grid (high-voltage transmission & distribution lines) owned by the incumbent duopoly, said Chung of CityU.

There are three renewable energy systems with grid-connected commercial scale in Hong Kong. Two are developed by HK Electric - a wind turbine and a solar system (1,800 kW) located on Lamma Island. They generated less than 0.01 percent of the total power capacity of Hong Kong. The third, by CLP, is a renewable energy generation plant (200 kW) on Town Island producing 40,000 units of electricity.

Vision needed

Steve Wong of HKEnCA advocated that the two power supply companies in the city pledge to take a lead in producing more renewable energy and put in more investment towards that goal when the current SCA expires in 2018 and a new agreement is signed.

Meanwhile, he suggested, part of the distribution lines of the power supply grid be opened for the use of renewable energy producers. He suggested the two power suppliers tie-up with manufacturers of alternative energy sources.

Wong says in the event such grid sharing does indeed take place, maintaining the safety and reliability standards of power supply systems would be of vital importance. "Hong Kong should produce more renewable energy. After all, fighting against climate change is crucial for the benefit of our next generation."

Contact the writer at

sylvia@chinadailyhk.com

(HK Edition 01/16/2017 page8)